Many European economies are being forced to restructure their public finances even as they venture to undertake massive structural reforms. This is stifling growth, worsening debt to GDP ratios in the short run and generating an unsustainable political situation. There is a growing sense that Europe has the capacity to summon just enough political will to pull back each time from the brink of a full-blown crisis but without ever reaching a decisive resolution. With the added political uncertainty from recent elections in France and Greece, markets could force a denouement sooner than anticipated.

With unemployment in the US and Europe remaining high, what are the implications for export-dependent emerging economies?

The burden of sustaining world growth is taking a toll on emerging market economies Export-dependent emerging market economies are unlikely to be able to count on much strengthening of demand from their advanced economy export markets.

Commodity exporting economies, both emerging and advanced, have become reliant on strong demand from China and India. A slowdown in these two economies could dampen world demand for commodities unless advanced economies pick up the slack. Unfortunately for India and other oil importers, political instability in the Middle East could keep oil prices high or even drive them higher, despite relatively weak global demand.